Berkshire sued for changing accounting rules in $10B Pilot acquisition
(Bloomberg) –Warren Buffett’s Berkshire Hathaway faces accusations it violated the terms of a more than $10 billion acquisition of truck-stop-chain Pilot Travel Centers by changing the accounting methods used to value part of the deal, according to an unsealed lawsuit.
Berkshire originally acquired about 39% of Pilot Flying J — a truck-stop provider closely held by Cleveland Browns owner Jimmy Haslam and his family — for $2.75 billion in 2017. The deal called for Buffett to buy a controlling share by this year. The billionaire paid $8.2 billion for another 41% stake in January, meaning he now owns 80% of the business, according to the suit.
The deal also gives the Haslam family the right to sell the remaining 20% of the company to Berkshire on January 1, 2024, using the valuation methods applied to the other purchases. But the family says Buffett’s lieutenants have changed the accounting rules covering the largest US truck-stop business, cutting the value of the so-called put right.
Pilot has repeatedly objected to Berkshire’s shift to pushdown accounting rules, according to the Delaware Chancery Court complaint, which was made public Thursday. Using those rules works to “unfairly harm Pilot and benefit Berkshire,” the chain’s lawyers wrote.
Debbie Bosanek, a Berkshire spokesperson, didn’t immediately respond to an email seeking comment on Pilot’s suit.
The deal has paid dividends for Omaha, Nebraska-based Berkshire, as the Flying J chain’s 750 locations across the country contributed $9.5 billion of revenue and $83 million in net earnings to Berkshire in the first quarter of this year. Continued strong second-quarter earnings in August sent Class B shares of Buffett’s conglomerate of transportation, utility, energy and insurance firms soaring 3.6% to $362.58 — its highest close ever.
The Haslams contend the accounting change will allow Buffett to “grossly devalue” the remaining 20% of the truck-stop company. They’re asking a Delaware judge to order him to stop using it as a violation of the acquisition agreement. The family’s estimates on how much value could be lost are redacted in the suit.
The Haslams contend a majority Berkshire appointees – who now control the chain’s board – have scuttled attempts to jettison the pushdown-accounting rules and Buffett has refused to provide assurances the remaining 20% will be valued like the earlier stakes.
Knoxville, Tennessee-based Pilot Flying J had been run by Haslam, the brother of ex-Tennessee Governor Bill Haslam, since 1996. Haslam has owned the NFL’s Browns since 2012, when he paid more than $1 billion to buy control of the team from Randy Lerner, son of billionaire credit-card magnate Al Lerner.
The case is Pilot Corp v. Abel, 2023-1068-MTZ, Delaware Chancery Court (Wilmington).
